Turn Your Kids Into Millionaires

Are you worried about the trillions of dollars of federal debt we’re leaving to the next generation? Don’t feel guilty, do something. You can start your kids now on a path to financial independence. Here are ten recipes for doing just that.

The average grad gets out of school with $20,000 of debt. That’s a crushing burden for someone getting—or just hoping to get—an entry-level job. If you can lead your kids to a cheaper university degree you give them a healthy push forward in their financial lives.

One strategy: Have your child start at a community college, then transfer to the more prestigious state university. Another: plan college spending and your own retirement saving years in advance so that you don’t get boxed in by financial aid formulas. I detail those tactics and others here.

2. Fund a Roth IRA

Tell your kids you will match every dollar they earn working, provided that your dollars go into a retirement account they promise not to touch for 50 years.

It sounds a bit extreme, sitting a 17-year-old down to talk about his or her own retirement planning. But tax-favored retirement accounts are a powerful way to build wealth. Chipping in to a savings account now is a lot better than helping out in other ways (like offering to buy the youngster a first car).

You can put away $5,000 a year in the kid’s IRA, provided he earns at least that much in a job. Compound $10,000 at 8% and it will grow to $469,000 by the time that teenager hits retirement age.

If the money is in a so-called Roth account it will compound tax free and come out tax free.

Where are you going to get 8%? I think that’s a reasonable expectation for the long-term return on a stock index fund, such as SPDR 500-stock fund (SPY).

If the youngster can’t stand the volatility, mix in some bonds: risky bonds in the SPDR junk fund (JNK), high-grade bonds in the iShares corporate bond fund (LQD) or still more safety in Vanguard’s bond market index fund (ticker BND). But bonds will dilute your returns.